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How manufacturers can overcome the risks of MDM and PIM

Master data management (MDM) and product information management (PIM) projects can be costly for manufacturers. Find out whether the cost is worth it for your business by calculating the ROI of MDM and PIM implementation projects. Discover some benefits – and risks – of MDM software initiatives.

It's often said that master data management (MDM) is a single version of the truth. But the real truth is that it's much more than that.

MDM is a combination of technology, business processes, data governance and data definitions, and this combination can provide an enterprise with not just consistently accurate data, but accurate data that is also actionable.

Manufacturing firms need actionable data more than ever. Today, manufacturers inhabit a fast-changing world of bringing out new products in new global markets and of mergers and acquisitions that bring new architectures and frameworks, new processes and new data definitions into the enterprise. The challenges for managing master data are immense.

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For example, a manufacturer may have two operating units that have slightly different definitions for the same item. If both operating units use accurate data, and an executive needs to make a decision based on this item, which data should they use? This is the type of question that MDM technology, which includes initiatives like customer data integration (CDI) and product information management (PIM), is designed to answer.

However, despite the need for MDM to resolve such issues, MDM/PIM software projects aren't without risk. MDM has often been associated with consumer-focused customer data projects designed to reduce duplicate and misdirected marketing efforts. With funding for IT initiatives so hard to come by for manufacturers in the current economic climate, are companies holding back on funding for MDM projects?

According to Aaron Zornes, founder and chief research officer of the MDM Institute, the answer is no. "The good news, for both users and vendors, is that MDM and PIM are still considered both strategic and capable of delivering ROI," Zornes said. "Whereas upgrades to Vista on the desktop don't make economic sense, MDM and PIM still make both strategic and economic sense."

Finding ROI for manufacturing MDM

So where are the key benefits of MDM for manufacturers? "The primary focuses for manufacturers are -- in this order -- cost optimization, new product introduction, revenue enhancement, and then multi-commerce MDM," said Andrew White, vice president of supply chain management research for Stamford, Conn.-based Gartner Inc.

According to White, cost optimization means that MDM efforts can simplify processes -- and lead to savings on procurement spending -- via cleaner data that's focused on products, items and materials that are procured and manufactured.

MDM initiatives can shorten the time needed to introduce new products by simplifying the way product data permeates across and extends outside the enterprise.

MDM initiatives can enhance revenue by showing the products and services that are already owned by customers -- and the options available to them – in order to help salespeople up-sell and cross-sell to customers.

Multi-commerce MDM is designed to improve customer services and reduce costs to integration processes and applications that relate to customers across multiple sales or customer-facing channels.

For manufacturers, eliminating excess or redundant information from supply chains can also be a huge opportunity to increase the ROI from MDM.

"Most companies with multiple [manufacturing] sites that grew through acquisition have similar plants that independently located suppliers for direct and MRO materials, and they assigned part numbers to those materials," said Bill Swanton, vice president of industrial products research for Boston-based AMR Research. "Many large companies grew through mergers and acquisitions of these smaller sites and can't take advantage of their size to aggregate spending, consolidate vendors and reduce unnecessary spare parts.

"Harmonizing supplier and material codes across sites enables strategic sourcing initiatives that can drive down prices and inventory," Swanton said. Benefits for manufacturers that do this, he said, include:

  • Reducing inventory by as much as 50%.
  • Reducing parts and materials costs by 5% to 10%.
  • Reducing headcount in sourcing and procurement operations by up to 25%. This is accomplished by moving to commodity teams that service multiple manufacturing sites.

If the engineers and product designers in one manufacturing arm can be aware of which parts are used in other areas of the enterprise, they can leverage MDM to find significant areas for cost savings.

"An assembly designer may require specific components within the constraints of provided engineering tolerances," said David Loshin, president of Knowledge Integrity, a Silver Springs, Md.-based information management consultancy. "If the designer is not aware of the existence of suppliers whose components meet the engineering specification, it might initiate a secondary design sequence for the necessary part.

"However," Loshin said, "the availability of an MDM/PIM system that clearly catalogues available components, their suppliers, prices, along with all associated metadata such as the design specifications, will enable the designer to rapidly determine whether the component exists and potentially stave off a costly design."

Building the business case for MDM in manufacturing

The scope of most MDM and PIM projects makes it difficult to calculate their actual cost, not to mention their ROI. If a manufacturer's top-level executives don't realize that their decision-making data is inaccurate and aren't aware of the back-end integration and cleansing efforts IT employs to deliver decent data for existing applications, then IT cannot build a business case for an MDM/PIM project.

"All IT can do is measure the master data errors and figure out what the business cost is," Swanton said. "Of course, if IT can translate bad master data statistics into lost orders, excess and obsolete inventory -- and quality issues -- the business will listen."

Still, building a business case for MDM isn't easy, and ironically, it may even be more difficult for highly competent IT departments. If IT is already delivering generally good data to applications and decision-support systems -- even if these are in silos and require a great deal of reconciliation and transformation effort – top-level executives will be even less likely to understand the core issues.

"If business decision-makers don't understand why they need the most accurate, consistent, timely and secure information available, then the folks in IT might have to get business interested and on board," said Michael Dortch, principal analyst of DortchOnIT.com.

IT teams that have already undertaken MDM -- or "MDM-like" -- efforts in areas such as IT infrastructure or help desk can use those results to persuade the business side, according to Dortch.

"There are often numerous examples just waiting to be unearthed and used as incentives to proceed toward MDM and/or PIM -- for IT and business decision-makers alike," he said.

MDM initiatives often result from data being siloed across the organization. "IT observes that there are lots of MDM-like needs, and so IT often starts an MDM program -- for an enterprise-wide view -- even if only one part of the business started the initial dialog," White said. "For example, a supply chain group wanted to launch MDM of product data to help with new product introductions. IT looked at the projects, and 'elevated' to MDM for all core entities."

The initial cost of an MDM project can make the knees of any business executive buckle. But understanding the multi-year gain can help ease their trepidation. In a recent Forrester Research report, The ROI of Master Data Management, author and analyst Rob Karel showed that in a typical MDM project, ROI might not enter the equation for 30 months.

In the report, Karel wrote: "MDM remains an immature business capability and technology space that offers many compelling business drivers but also introduces a great deal of risk. Many aggressive organizations have learned the hard way how an expensive MDM investment -- if implemented improperly without effective governance -- can in effect open Pandora's box, propagating less-than-trustworthy data across the enterprise. But if scoped and managed appropriately, MDM can deliver significant benefits."

Chris Maxcer is a freelance writer who frequently contributes articles to SearchManufacturingERP.com.

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